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Retail Forex and Reserves – What Are They?

March 7, 2013 0 Comments

Retail Forex is a subdivision of the market. It is therefore much smaller than the overall market. Retail Forex refers mainly to online Forex trading, which today, is the most practical way for an individual to trade Forex. Trading is not something new, however, online Forex trading is. It’s been in existence for about a decade now and it only keeps on developing further and further year after year.

The main characteristic of retail Forex is that it is a way for individuals — whether new to the market or experts in it — to buy and sell currencies very quickly. Positions can be opened, and closed seconds later. Also, retail Forex has bypassed the traditional broker-investor relationship as many Internet-based trading firms offer their trading platforms without the intervention of brokers and/or a dealer. Furthermore, it is common that in retail Forex, clients will be offered high amounts of leverage. Financial instruments in this include: Forwards, Futures, Swaps, Spot.

While in a way Retail Forex has democratized trading on the market, it has been claimed to have a negative effect on it as retail traders often easily lose money.

Forex Reserves

In the past, reserves were only held in gold. As gold’s role in society declined and as the dollar’s role grew, reserves were converted into dollars. It is common for banks nowadays to own/posses many currencies at once, as well as large amounts of it as reserve. However many currencies banks own, the dollar is still the most significant reserve currency.

In a sense, holding reserves is a security measure. By spending large reserves, banks are able to support their currency, keeping its value high. However, large reserves are usually a consequence of the exact opposite; they are the result of banks having purchased other currencies in an attempt to keep their own currency low. The amount central banks hold in reserves keeps on changing. It changes as a result of monetary policies, of supply and demand forces, and other factors.

Foreign Exchange reserves are foreign currency deposits that are held by monetary authorities (including central banks). They are also called Forex reserves. The term ‘Forex reserves’ is also used for Foreign Exchange as official reserves or international reserves. This is to say that these are the different reserve currencies that central banks hold as assets. Such currencies can be the USD, EUR, JPY, etc. Banks use these to back their liabilities.

And as already mentioned, the different reserve currencies that central banks posses are assets. Hence, reserves are means to allow central banks to stabilize their own currency. Forex reserves are important to every economy. They are used in foreign-relation policies and indicate a whole lot about a countries’ ability to repair foreign debts (for whatever reason). Forex reserves also indicate a nation’s credit ratings.

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